Chargeback Alerts

When a customer initiates a chargeback, they contact their issuing bank and provide the reason for the dispute. When the issuer decides the dispute is valid, and deflection does not resolve it, the dispute phase begins. Here, the merchant has a window to act. They can either accept the dispute and resolve it, or let it advance to the next phase and continue to fight. This is where dispute alerts come in to play; alerts notify merchants of incoming chargebacks. Alerts are triggered when the issuing bank then sends a request to the card network, which forwards it to the acquiring bank. The acquiring bank deducts the disputed amount from the merchant account, and the revenue slips back to the cardholder as a chargeback. Before alerts, this chargeback would be the first time a merchant hears about a dispute — in many cases too late.

Alerts & Their Providers

Alerts precede a chargeback to give merchants the option to refund their disputes before a chargeback comes through with its attendant fees and penalties. Solutions: Ethoca Alerts, Verifi CDRN & RDR Alerts began as Verifi/Ethoca products, but these companies have since been acquired by Visa & Mastercard respectively. Before alerts, merchants would only learn about a dispute when the chargeback took their transaction revenue. Now, with alerts, merchants are notified of an impending chargeback and can take preventative action by refunding the cardholder. Of course, this is not ideal — they’d rather keep the revenue — but in cases of third-party fraud, a refund avoids additional fees and penalties incurred by a chargeback. This is particularly beneficial to high-risk merchants that need to stay below their chargeback-to-sales threshold of 1%. Furthermore, this is an ideal solution for digital merchants, where no physical inventory is lost.

A note about Automation

Currently, Verifi’s RDR (Rapid Dispute Resolution) is the sole solution for automated resolutions in the Dispute Phase. While CDRN and Ethoca Alerts are managed manually through the merchant gateway, RDR executes automated decisioning based on preset rules defined by the merchant. When the rules qualify a dispute for refund, RDR routes a refund through Visa.

• Issuer BIN
• Transaction Date
• Transaction Amount
• Currency Code
• Purchase Identifier
• Dispute Category
• Dispute Condition Code

What Alerts Are Not

It’s important to understand the limitations of alerts, and their role in the dispute management ecosystem:

• Alerts do not deflect or invalidate disputes; they strictly prevent chargebacks by enabling the merchant to refund.
• Alerts do not reduce the fraud-to-sales ratio; only the chargeback-to-sales ratio
• They do not prevent shrink or inventory loss; merchants rarely receive an alert in time to block fulfilment of the disputed transaction

Alerts are not an ideal stand-alone option to resolving true fraud disputes. For alerts to be truly effective, the merchant should take preventative measures upstream, including:

1. PCI Compliance: These are best-practices set forth by the card networks to ensure security of credit card transactions and prevent data breaches. Training and requirements are here
2. 3DS Authentication: Using 3DS reduces fraud, but also shifts liability for authenticating transactions to the card issuer or network.
3. Fraud Filters: This ranges from basic authentication requirements in the merchant gateway (such as having AVS and CVV inputs) to third-party fraud scoring solutions
4. Deflection: if the cardholder can be tied to the transaction, in cases of first-party fraud or misuse, the issue can be deflected before the Dispute Phase.

These are all proactive measures to prevent fraud from entering the payments ecosystem; and if it does, to ensure the transaction is in fact third-party fraud that warrants a refund.

Alerts vs Fraud Notices

It’s important to note the difference between alerts and fraud notices. These notices, such as Visa’s TC40 reports or Mastercards SAFE data, are generated from a cardholder’s initial claim that a transaction is fraudulent, before the issuer investigation. Because they often precede alerts, notices can help merchants halt fulfilment of fraudulent transaction. Fraud notices can also be useful to inform pre-auth fraud filtering, but they’re not entirely reliable for that either, since the veracity of the fraud claim is not yet verified by the issuer. Some merchants use TC40/SAFE feeds as alerts, refunding each notice. However, this is refund overkill. Verifi reports that roughly only 20% of all fraud notices become chargebacks. That’s why, for the purpose of preventing chargebacks, merchants should subscribe to alerts and not to fraud notices.

CONCLUSION

Alerts are effective at reducing chargebacks, but they do not protect against inventory and revenue loss. Despite this narrow application, the benefits that alerts offer are frankly only ideal against third-party fraud disputes. Having processed a fraudulent third-party transaction, the merchant is stuck holding the bag, and alerts make the best of a bad situation. Automation through tools like RDR further reduce the OpEx, and refunds prevent the downstream effects of mounting fees and penalties. Alerts are effective at preventing chargebacks, but alerts are only one part in a comprehensive dispute management strategy. If you would like to learn about other solutions that can protect revenue, speak with a DisputeHelp expert today.